LPKF Laser & Electronics SE (LPK) Earnings Call Transcript & Summary

Hello, everybody, and welcome to our earnings call for the first half of 2026. My name is Bettina Schafer, and I'm responsible for Investor Relations at LPKF. I'm pleased to be joined today by our CEO, Klaus Fiedler; and our CFO, Peter Mummler. Klaus and Peter will walk you through the business development for the first 6 months and provide an outlook for the current financial year. After that, we will open the floor for your questions in the Q&A session. The conference will be recorded and published for a period of 2 weeks on our website. And before we begin, please note that today's discussion may contain forward-looking statements. These statements are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. We do not undertake any obligation to update these forward-looking statements, except as required by law. With that, I would hand over to Klaus.

Thank you very much, Bettina. Hello, and welcome, everybody, to our first half year results. I want to give you, of course, a key summary of what happened in the first 6 months. We'll dive a little bit deeper into the individual businesses, but of course, give you a deeper insight what's happening in the advanced packaging sector, where we see our positioning and what we expect as the next steps. Let's get started. First half of 2026, a challenging first half that we expected and anticipated in our planning. We had a weak core business. So the only growth sector we saw was in the Electronics segment. And as expected and planned, we have a very weak year in solar because the transition to perovskite is happening. And we are in a transformation phase with welding. So that burdens our revenue and earnings for the first half. One aspect of countersteering and Peter will later give you more detail, is our North Star program where we reduced fixed costs, transforms the organization, raised efficiencies. We are about halfway through. The second phase is initiated and running. So we are on track here. Our strategic focus stays unchanged. We want to enter significantly larger TAMs than we do with our current market fields, and we want to become strategically relevant in these fields, meaning offering more than a process step, becoming a strategic partner to our company, to our customers. And this sector is, of course, advanced packaging with the transition to glass happening, where we see now that we expanded our portfolio and with AI driving the market and the wafer start strongly that we have a significantly larger TAM than we modeled a year ago. I'll show you more details about it later. Our midterm market ambition stays intact despite short-term headwinds we stay the course, enter a much larger TAM with advanced packaging and also bring our costs and our structure to a level that we reach a sustainable double-digit EBIT margin by '28. Let's come to key takeaways and insights from our markets. So what we see and also anticipated in our planning range is that we have a persistent macroeconomic and geopolitical uncertainty. We have the Iran situation in the first half, which, of course, brings uncertainty to our customers and into supply chain and causes cautious investment behavior. When we look at the solar sector specifically, as expected within our planning, at the moment, there is very limited investment happening because the transition to perovskite is running. We are positioned in perovskites, both in the U.S.A. and in Asia with first prototyping lines and the activities are going with a very strong efforts from our customers. Once perovskites are -- have reached maturity for high-volume application, we see a very good market potential for a long period of time. That's also the reason why we basically manage through a very difficult year for solar, where we expect and plan for less than half the revenue we had in our record '24 solar year. In the semicon industry, you can see it in the press. You see the public announcements of large players in the field. We are now in the phase where the transformation towards glass-based packages for AI, for advanced packaging is becoming real. Joint ventures are formed, are getting capitalized. Large companies make announcement about their ramp-up and volume plans. So we are now in the phase where LPKF needs to prove that our very good positioning that we have achieved, supporting our customers in development for many years now gets transitioned into being qualified into the equipment stack and participating in the ramp-up and in the high-volume phase. We have updated our market model based on the latest projections from analysts on wafer starts for high-performance computing and are now looking at a total addressable market in 2030 that is very significantly larger than what we anticipated. Now it's time to prove that we are in the equipment stack and in the operations for this market. Overall, business development, advanced packaging with LIDE being basically our entry ticket into that market. We have a very good positioning. A big share of the players in this market are already working and have ordered LPKF equipment for the development and qualifications. We now, as mentioned, need to transition that into broad orders for the ramp-up, and we have expanded our portfolio already now with additional process steps, basically already at the start of this market, becoming more than a one-trick pony becoming a strategic player. Rapid prototyping, slightly lower revenue in the first half, but higher order entry. So basically, we see ourselves on track here. When we look deeper into the markets, we see a healthy demand above expectations from China and Europe. We are seeing a weak U.S. market, which is largely driven by uncertainty about availability of grants in the public sector from the U.S., but in the big picture, it evens out. In our SMT sector, which is dominated, of course, by our laser de-paneling for PCBs. We saw, especially in Q2, an investment restraint and some shifts of projects due to geopolitical tensions, still see a clearly stronger first half, specifically in order entry and continue to stay the course. We see that laser de-paneling is a long-term relevant portfolio element for LPKF. We talked about solar, as expected and planned, a weak year, significantly lower revenue, which also is that dominating factor why we have overall LPKF lower revenue in the first half, delayed CapEx decisions because people want to invest into perovskites once they are ready, and these activities are still in a qualification phase. Welding, revenue down year-over-year, earnings negative. You know we had a large consumer business supporting us in this year -- in last year. We have made it into smart robotics that is giving us a good foundation for the year. We have to transition, and that's what we are doing this product line. We have to significantly change the cost structure. Peter will talk about it in a minute. But we see that we make the right progress getting into consumer electronics, smart robotics, medtech that we can make our planning target for the year and set up the product line in a way that it can get back on a profitable growth path. A lot of this has to do with North Star and changing how we operate at LPKF. I hand over to Peter to give you more details about that.

Thanks, Klaus. Operations, North Star program. The first restructuring wave is completed. We really finalized it now in the first half year. The future organization in the second wave, and we will get in the next slide a little bit deeper on this, will go in this sharpen and improve LPKF overall again. Objective is really we need to go to a cost reduction and flexibility of fixed costs because this is our really downturn, we have always -- revenue goes down, we have a dramatic impact in profitability. But we need to secure or support the future growth in advanced packaging. Very important that we have the balance to get -- to support this process the way we have planned to go. The restructuring costs are in the range of 3% to 4% of revenue. This is on plan. We're working on this on the implementation. And again, the balance is going in there, getting efficient, but safeguard our innovation, our DNA. Overall, we are confirming our guidance and confirming the midterm target to reach 2028 double-digit EBIT. Go to the next page. I think it's -- we need to give a little bit more deep dive, next page, about North Star. North Star was planned in 2 waves. The one wave was really urgency, fast track cost savings. This wave, we completed. The wave 1 was really rightsizing of engineering. We closed the production in Furth. We combined a new -- we added a new production line in Suhl, created synergies. We transformed the philosophy of the welding business, more efficient products, getting down on the cost by product, and we want to really push strategic procurement and cost savings, go more strategic bundling suppliers and get savings in there. Overall, we reduced our headcount roughly about 10% in the first wave, and it's completed. But the actual data, it's 646 headcounts we have on board, and this is completed. Very successful. We remain 1 month late, but this has to do with the negotiation with the workers' council. The second wave, we started, we go is LPKF fundamentals. And there are 2 focus areas. The one is that we're really concentrating on operational processes like operation, production, supply chain, sales, engineering, get faster, leaner and the quality. The second one is, and this is the DNA, what I mentioned in the slide before, innovation is the DNA of LPKF, and we will not go away from this. We will further invest in innovation, and there's no saving for us planned. But we want to get more excellent in there. We want to get faster in the innovation, closer to the market and getting more output of this. This Wave 2 results in a transformation in a functional organization. and we want to get really these levers. This is Wave 2 is planned. We had structured it. We started now the alignment with our workers' council on corporate levels. There will be, yes, further headcount reduction, but this is more on the smart move on really where we improve things, we will need less resources. But -- and this will clearly support our ramp-up in the advanced packaging, what's based on efficiencies and processes. I think overall, we are really good on track with North Star. We are on time, and we will finalize the Wave 2 somewhere in '27 that we really can materialize all the activities and measurements in 2028. Therefore, we need to close it in the mid of '27 to be -- secure our double-digit 2028 target in EBIT. Therefore, I would give over to Klaus for an overview about Advanced Packaging.

Thank you very much, Peter. And -- as you all know, in the past months, our stock has been quite in focus on the investor side. And yes, Peter and me had a lot of investor calls in the past 3 months. This is, of course, driven by what's happening right now in the advanced packaging market. I want to give you a brief overview on our strategic direction, where we stand, what next measurement points are ahead and how we see this overall market as a total addressable market now. As you all know, LPKF has a clear strategy. We want to leverage the excellent technologies we have into much larger addressable markets, larger meaning factor of 10 and more above what we currently have. One market that we identified is the advanced packaging market where a transition to glass as a material is happening. And we, for many years, have been providing to the market the right process solutions there as a pioneer, as a frontrunner with a strong IT portfolio. We achieved in this ecosystem that you see here that the dominating part of players that have made an equipment decision here have selected LPKF, have for many years been working with LPKF to fine-tune the processes, get all the qualifications done and get ready to ramp. What we are now seeing as first of these players, by far, not all of them, have reached the total process maturity to be able to place first ramp-up orders, so first operational orders. And this, of course, is now a key measurement point for LPKF. Nobody in the world doubts that we are a great technology partner. We know technology. But will we now also be chosen to be the operations partner and participate in the first ramp-ups and in the very high potential that comes with high-volume production for glass. So positioning is good. But with one process step, you cannot achieve the second strategic goal, and that means we need to become strategically relevant in this field. We need to be on the table in road map discussions. We need to be the go-to partner to -- for whoever thinks about glass in packaging. So as you know, next slide, already in Q1, we expanded our product portfolio. We are offering now 3 process steps instead of 1. The one is LIDE. That's basically our entry ticket, nothing more. And that, of course, comes from deep year-long insights and discussions with our customers on where do they have true pain points and where can we offer highly differentiated solutions. So that's out in the market. That's done and that's good because now is the time to position ourselves in a broader way. When we see the time line and phases, we see them unchanged to what we already showed you a year ago. Next slide, please. '26 is still a positioning year. I would say we successfully executed on the positioning. Right now, the negotiations are running. It's the time where the first ramp-up for ramp-ups happening in '27 are distributed, and that's the information we want to provide to you as investors once the whole deals are done, yes, we made it into the equipment stack. There will be other players who are not part of the frontrunner team who will place their ramp-up orders in '27, and we will do the same, position ourselves, provide the best solution, win, and that's our ambition. The majority of the deals, not all of them. It cannot be a single source market to then be also the partner for the high-volume phase, which we expect '29, 2030, with deals being distributed, of course, in advance around '28. And at the same time, being there with a broader portfolio with ABF ablation, with glass bonding in roughly a similar time line while using our market insights now to do the same first positioning, then be there for the ramp-up for us, the next logical step in this market happens. And that means the glass is used also as a medium for optical data transmission. Now when we look at the addressable market in that field, next slide. A year ago, I was telling you, yes, we did our estimate for 2030. We see a total addressable market for equipment that LPKF can provide of about 500 million. Now it's a highly market driven by AI. So we updated our market model, of course, incorporating the much more tangible insights now we have into the production chains and our customer ambitions, of course, incorporating our expanded portfolio, but the biggest impact factor incorporating the latest public information from various sources about, hey, how do we see the wafer starts for high-performance computing, so driven by AI developing for 2030. And that number has been corrected upwards drastically. That's public information. And of course, our addressable market follows. What we show you here is the total addressable market for 2030. Total addressable market, meaning in 2030, suddenly everybody switches to 100% glass and installs all the necessary equipment in the same year. That's, of course, not what the specific addressable market and the obtainable market looks like. Impact factors are what will the share of glass be in 2030. I talked to about 100 investors who are very deep also in the semicon market in the past months. There, the estimates still go from bearish cases like 30% glass in 2030 to very bullish cases of 80% glass in 2030. In all these cases, it's a multiple in total addressable market and obtainable market for LPKF than our total combined markets right now together. So in any case, a very attractive case. And it depends on the share that LPKF can achieve. You know our positioning is good. There is competition. We are actively defending a lawsuit is running our IP where we think people want to take a shortcut. We spent 10 years of R&D in that field. There, we see us positioned very well. But the most important next step and the market, and therefore, the share price already anticipated that in the past months is can we now win a realistic amount, a dominating amount of the first ramp-up deals to basically also transition into a significant share of this total addressable market for LPKF. That's where we stand right now. The negotiations with the frontrunner partners are running. If you follow the press, you see that they form the entities, form joint ventures, capitalize them. So my expectation is that we can get very clear information out to you this year about here is the first deals we won. Well, one deal we already won in Q1, but we want the broad market to basically deliver the proof point LPKF made it into the equipment stack passed the operational hurdle. And of course, Peter and me make sure we stay ahead of the curve also in our capacity that whatever case materializes, bearish case, bullish case, we are always there and can serve our customer needs. That's where we stand in advanced packaging. From my position, we found the right market. We are even a little bit lucky how much now the wafer starts go up, which boosts the total addressable market. Positioning was done well. We are right now in the negotiations, and I think we have a very good chance of success to make it into the equipment stack. With that, I hand back to Peter to give you more details about the first half numbers.

Financial. Go to the next page. Overall, in the financials, when you see the first half year, the numbers, the volume is low. A general comment from my side. Basically, we knew and we planned and we expected in H1, what is on the low level. due to, we know that the solar business market, and we saw this coming. This is not a surprise for us. We would hope that we get closer to the EUR 40 million. But what Klaus mentioned in the beginning, we have to the geopolitical uncertainty in certain areas. We still have this continuous cautiousness of investment and behavior. And this is not that we're losing contracts. It's about that it's shifted about making a decision to purchase more likely. The revenue, EUR 36.5 million. It's reduced in H1 compared to last year, majorly driven from Solar that we don't get one of the bulk orders in there. This we see, and you will see this later on, on the first half year, how Solar is doing. This consequently had an EBIT impact about the adjusted EBIT is minus EUR 10.4 million. This is significant due to the revenue reduction impact. Here, we see already a positive impact of North Star, EUR 3 million to EUR 4 million that we really can cover the fixed cost reduction that otherwise, when you just make a calculation by reduce the volume, we would be looking a little bit more in the negative area in the adjusted EBIT. But this shows how important North Star is to getting the flexibility in the fixed cost that we are not getting always the big hit by reduced of the profit of the volume. Incoming orders, basically, good news is that we are above the book-to-bill rate in there. Again, it's missing contract of the bulk orders of Solar. Here, we have some -- it's a mixed information in the market about good news and disappointment about shifting. But there, we are pretty good on track. The free cash flow of minus EUR 11.5 million. On the one side, we still have a very good asset management. On the other side, yes, we are reduced people. We're laying off people. There's a couple of cash out elements right now, what's financing the transformation. The EUR 11.5 million is in the range of what we're expecting. But overall, we see that the trend will go towards '27 in a much positive range. Orders on hand, it's on the same level as last year, EUR 34.7 million. We're working on this. This is one of the key elements in the second half year where we need to -- we are stable here. It's a good base for the next quarter, but we need to keep going to increase the order on hand. Employees, you see this development, 443 headcounts versus 664. This is the wave 1 of North Star, what I mentioned, majorly impact that we reduce the resources, fixed cost out. This was a wave 1 driven by this element. And this shows that we will be doing our homework to reduce costs and improve profitability. Next slide. Here we go to the working capital overview. What I mentioned, I mean the inventory increased by 22% to EUR 23.9 million. This is majorly driven by preparing the additional volume selling for the second half of the year. Therefore, we need to increase certain elements of inventory to be capable to deliver. This is the preparation, the main driven why we increased the inventory. Receivables, yes, on the one side, less orders, less revenue, less receivables, but we keep on a very good level on collecting debt, the quality of our suppliers, of payments behavior is still on a very good level. That's the reason we keep the receivables on a low level. Contract liabilities shows majorly that we're getting contracts in where we're getting down payments from customers. We try to collect upfront payment that we're getting our contracts in a positive cash situation. This we keep going and this is the improvement. Trade payables overall follows a little bit the inventory and the revenue. That's the reason we have a slight increase about trade payables. Overall, I'm very positive about our working capital development in the circumstances this company we are, and we are getting in a good way on this with the EUR 22.3 million when you just imagine that we're increasing our inventory significant by 22%. Next slide. Here, you see a little bit what we already mentioned in a couple of statements before. This is our business segments here today. Electronics, we are on the level that we are slightly increasing towards here. This is -- again, it's no bulk orders in there. This expectation about electronics will go to end of the year or '27, stable, slightly growth. You see that we're going on the slight improvement in the profitability, but electronics is still in a negative way because we are investing in the LIDE story. We're investing here still to get the advanced packaging ramp-up going to preparing for this. Development, there we have this behavior of investment of delaying the weak U.S. business in the development. That's the reason we're going slightly down in the volume. This is government funding, what -- there's really a behavior about stopping investment, holding investments. Nevertheless, when you look at the profitability in the EBIT, we do our homework here. We're reducing fixed costs here that we're not getting an impact. We're improving slightly the profitability. We're doing a good job to define countermeasures. Welding, it looks terrible, but this is in the expectation of our first half year because in last year, we had this significant contract, one trick pony big contract in Q1 last year from consumer electronics. We are on the way here. We have here significant impact in transformation costs. Therefore, the profitability right now is driven by the reduction of the volume. In the end, you see the drama in Solar, what we mentioned. We're losing roughly EUR 8 million compared to last year because of this transformation in the market towards the perovskites. No big investment done. We're really going and you see this when you say EUR 18 million on volume reduction, profitability impact roughly around EUR 6 million. This shows we're doing our homework to reduce cost as much as we can with short-term work, but this is somewhere expected. We know that this is coming, and we have enough counter measurements, but there you see one of our significant impacts we have. Overall, we would have pushed a little bit slight higher volume. But again, I think the range where we are in H1, it's not a surprise that we have this impact here. Klaus, over to you.

Thank you very much, Peter. So to our overall guidance midterm aspiration, no change. We were expecting a weak first half. We at least made a slight growth in order entry, therefore. It will not be a walk in the park, but we see our guidance for '26 as achievable. And we definitely say, yes, we know solar for this year is a disappointment also to our investors. We clearly see that perovskites offer a very strong opportunity for the future. So we are convinced it's the right decision to hang in there in a year where we are basically missing in the first half alone, EUR 20 million from the solar sector. And of course, in the semicon market, we see that we now have the positioning to really achieve this year the transition into being part of the equipment stack, the addressable market looks very positive, and we see that AI is a driver that despite global uncertainties, stay strong, go strong and gives us a great opportunity. There, we fully stay the course. And as Peter mentioned, play to win or don't play. We continue to invest in this sector because this is where we see the future strong growth drivers for LPKF. And with that, I hand back to Bettina to basically guide our Q&A session.

Thank you very much, Klaus. Ladies and gentlemen, we are now ready for your questions. [Operator Instructions] The first question comes from Lucas [indiscernible].

I would like to start with the LIDE order you mentioned for Q2, which you received. Maybe you can share a little bit more light in terms of is this order from a customer or a partner you have announced a partnership in the past. Can you share the amount of machines the customer has ordered? And maybe also in terms of the region this customer is coming from, can you share a little bit more detail? That would be my first question.

Thank you, Lucas. So of course, I need to stay confidential. I have NDAs with all my customers. Q2 orders, of course, we have portfolio orders constantly in LIDE. So what we had in Q2 were not orders for ramp-up purposes for true operational hurdle purposes. They were basically individual portfolio orders. And what we considered worth reporting to our investors is that one large specialty glass company ordered LPKF equipment. In that specific case, one machine, but potential even short term for ordering more. That we consider important because specialty glass is the raw material in the whole production chain that is currently in the course of ramping up for semicon market. And it confirms for us if those guys who are developing the specialty glasses for this market also want to work in-house with LPKF equipment confirms for me that those guys want to tune their materials to the glass structuring process that they expect to be the dominant structuring process in that market. Another order we got was just from a university, which happens very much on the front of research and development in glass structuring. So it's another confirmation if those guys order LPKF, it shows they work with what is now considered a little bit as, yes, a go-to partner when you buy equipment. I hope that answers your question, Lucas. And please forgive me, there aren't that many specialty glass makers in the world. I cannot give you more details.

Okay. And then second question is regarding JVs. You also mentioned this in your presentation. I try to avoid names, but I think due to this description, you will know which players I mean. We saw 2 announcements in July, one beginning of July between a Korean player and the Japanese player for glass core with targeted production in the second half of 2027 and another JV announcement in mid of July between a Japanese and a Korean player for commercialization of JV glass substrate, also with planned mass production next year. And also this Japanese player has a production or partnership with the big U.S. semiconductor player. So how do you see these developments? And can you share any insights from your perspective to this?

I see these developments as absolute par for the course in our expectation of the market. The first players have reached the right maturity to now announce ramp-ups for the joint ventures, capitalize them and begin to issue CapEx to the supply base. And without, of course, mentioning any names, that's exactly where we are positioned and are now working, negotiating, winning deals to show our investors, we are the ones who also are there for operations. And again, Lucas, I clearly see this is only the start. There are many more players out there who have a great business model, but are not yet at the stage to say I can push the ramp-up.

Okay. And then last question on the guidance. On the revenue side, you need at least EUR 68.5 million of revenue in the second half of the year. Orders on hand were now at EUR 34.7 million at the end of June. So can you share your assumptions how you want to reach the guidance and where the revenue in the second half should come from?

Yes. So basically, as LPKF in every year has a much stronger second half than first half. It's in the nature of our game and on CapEx cycles through the year in many of our markets. We are working, as always, with weighted funnel method to weigh our opportunities, weigh the customer needs and so on. And what we see is that the funnel has more than sufficient opportunities to make it in the guidance. We kept the guidance broad because every year, there was some sort of crisis. Oh, you have the Ukraine war, you had COVID before, you had the tariff situation. This year, it's Iran. So we were already anticipating in our guidance, hey, the next crisis will come. There will also be the next crisis in '27. That's the world we live in. And it will not be a walk in the park in the second half. But looking at the funnel, looking at our usual seasonality of our business and revenue, Peter and me say we can stick to our guidance. Yes, we still are anticipating one solar deal out of Asia that goes into revenue for the second half. This is not a make or break from one deal. There are several smaller opportunities on the table. But this we need to achieve because that is something that moves the needle in a relevant way.

This would be single digit or double-digit million?

Single digit, but it moves the needle.

The next question comes from Bastian Brach.

So my question is on the additional LIDE processes. How do you view the long-term potential of these? You mentioned bonding, simulation, but also CPO a little bit later. How do you see that potential relative to the core glass structuring business and the longer-term revenue mix within LIDE?

So maybe we can go back to our TAM slide, Bettina. So Bastian, I see the potential of the additional process step, not counting CPO, but just bonding and RDL ablation significantly lower than the actual LIDE process step. We also target in our internal model a lower market share than for LIDE in these process steps. This is still a highly attractive TAM. For me, offering these process steps is not only about, hey, I need to have additional revenue opportunities. It's also very clearly about I need to go into the market with a strategic portfolio. When -- I'm now working with the largest OEMs in the world, companies that are several orders of magnitude larger than LPKF. And I'm in. So I need to offer also their purchasing departments, a whole portfolio they can fit their factories with on and not, hey, I'm bothering having a supplier in my supplier list for one process step. It's highly important that we show we are here to stay, we are here to do more for you. And if you have a new production line, several of the steps you can get from LPKF. So to answer your question in short, you see it here, the TAM is a fraction of the LIDE TAM for RDL ablation. We also target a lower market share here because it's not as, let's say, disruptively differentiating as our LIDE tools relative to competition, but it's highly strategically relevant. We cannot be in this market sustainably for long term as a one-trick pony. That's what we firmly believe.

Okay. Perfect. And maybe one additional word on the CPO. When will that be relevant? So what time line are we looking at there?

So again, when we say CPO, I mean, there are CPO, there are architectures out there right now. What -- when we talk about CPO, we are really talking about using the glass core in the substrate as a light transmitting medium for the individual dies to communicate optically. And these architectures are in the R&D phase. There are a ton of different architectures out there. And we all know 90% plus will die in the R&D lab. So we are really turning it around this time. First, fully understand the market. We have the access now through our LIDE tools. People are talking to us, then go into a positioning phase starting from '27. We don't expect ramp-ups with this technology before '29 and no high volume before 2030, '31. This is more what's the next big thing after glass core, glass interposer and basically expanding LPKF's footprint around glass and advanced packaging.

The next question comes from Johannes Ries. Mr. Ries, can you hear me and can you speak? Can you unmute yourself?

I'm sorry. Also maybe 1 or 2 questions definitely to advanced packaging. First, if you said that maybe also if we look to the joint ventures or what TSMC said regarding their customers based on glass substrate, they will start the production next year in the conference call in Q2, they mentioned this. The customers has -- your customers has to start to the ramp-up and you said one or other customers is ready to start the ramp-up. Therefore, it's not unlikely that maybe in the second half, we should see the first orders, the first orders for the ramp-up of LIDE in the glass structuring.

I fully agree, Mr. Ries.

Okay. Short answer to...